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Cash transactions on the call money-market rise in a rebound of the moribund interbank platform as the central bank's policy revision, cutting 50 basis points in the state-guaranteed standing deposit facility (SDF), helps change the equations, sources say.
At the same time, the Bangladesh Bank (BB), the country's central bank, keeps purchasing US dollars from the commercial banks as part of its move to stabilise the taka-US dollar exchange rate and injected caches of the local currency in exchange, which, in fact, increases the flow of liquidity on the money market.
The commercial banks, encouraged by the cash flow, are investing in interbank spot market amid persisting economic sluggishness, according to market players.
Call-money market is a key platform where borrowing and lending take place among banks to fill the asset-liability mismatch, comply with the statutory CRR and SLR requirements and to meet any exigent demand for funds. The banking regulator has been taking various policy steps like squeezing borrowing facilities of the central bank only to breathe life into the moribund call-money market.
According to the statistics available with the central bank, a total of Tk 888 billion was transacted among the banks on the call-money or spot market in June last while lenders kept their surplus funds amounting to Tk 727 billion in low-yield standing deposit facility (SDF) in the same month.
As the affluent banks see call-money transaction not suitable, the banking regulator came up with a policy intervention lowering the rate by 50 basis points to 8.0 per cent in July last to discourage SDF usage where the rate is far lower than that of the call money-- around 10 per cent.
Afterwards, the situation reversed as cash transactions on the interbank market started gaining momentum with the banks' craze for the low-yielding SDF losing steam.
In July and August last, the data showed, the monthly volume of interbank spot transactions rose to Tk 1.16 trillion and Tk 1.16 trillion while monthly SDF-usage volume was recorded at Tk 261 billion and Tk 267 billion respectively.
Executive Director (Grade-1) of the BB Dr Md Ezazul Islam says the banking regulator has been taking various steps as part of "modernisation of monetary -policy framework and liquidity streamlining to make call money vibrate and it now starts paying off".
He mentions that the rate in SDF was cut down to 8.0 per cent from previous 8.50 per cent for discoursing banks from having surplus funds to bank on the state-guaranteed deposit facility.
On the other hand, he says, the central bank continues buying the American greenback from the market to make the foreign- exchange market stable. So, banks having liquidity pressure are now being able to overcome the problem through selling the US currency.
"And the banks have now been investing in call money amid low investment regime and that's what we want," Mr Islam, who takes care of Monetary Policy Department (MPD) of the central bank, told the FE.
Managing Director and Chief Executive Officer of Mutual Trust Bank PLC Syed Mahbubur Rahman says the liquidity situation in banks continues improving because of regular sale of US dollars to the BB in recent times.
Simultaneously, he adds, the dependency on ALS or assured liquidity support by a section of banks has been declining along with the cut in SDF gains.
"These factors are helping raise transactions on call- money market, and I think the BB will keep on buying more US dollars in the coming days until resumption of economic activities in full swing," the experienced banker says.
According to the BB, the central bank has so far purchased $1877 million since July 13 under the prevailing free-float exchange arrangement and injected around Tk 228 million into the banks, which plays a key role in improving the liquidity situation in the banking industry amid prevailing low investment regime.